Refinancing a loan can be both a good thing and a bad thing, depending on the rates you secure on approval of the loan. When you refinance you typically do so in the hopes of improving your finances in some way, either with lower home mortgage payments, reduced interest, or by improving the home to build equity. You never want to refinance if you’re not going to experience some sort of financial benefit. So, that being said, when you refinance you’re going to want to get the best refinance rates possible. Here are a few tips that might help you out.
The Best Refinance Rates Start with You
- The first and most important tip offered here today is the tip to improve your credit score. If you already have a credit score in the 700’s, great, you’re probably in a pretty good place. However, if your score is lower than that you will want to take the steps to improve it if at all possible. Oftentimes if your score has dipped below 700 you’ll be looking at a higher interest rate because you are considered a higher risk. For a small loan, this wouldn’t be much of a problem, but on a home mortgage, that slightly higher interest rate (sometimes only one or two percent) can mean thousands over the life of the loan. So you may be impatient to refinance, but if you jump the gun on this one you could end up paying out thousands that you may not have had to pay otherwise.
- Before you approach a lending institution on a possible refinance, come up with a plan of action for your home. Do you intend to live in it for a short period of time, say five or ten years, or will this be your principal residence for the next thirty years. Knowing the length of your stay in the home will determine whether or not you choose to pay points (a point is about 1% of the loan amount). By paying points up front you can reduce the interest rate, which can be a wise move if you’re going to be in the home for a lot of years.
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Be Picky With Your Loan Lender
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- When you’re shopping around trying to find the best refinance rates, you may not want to go with the first lending institution you come to, even if it sounds like a great deal. Interest rates can vary by lender depending on their guidelines and any promotions they may be running. A good starting point is to call multiple loan lenders and find out what options they have available for a refinance, and what kind of benefits you as a homeowner will experience when using one of their loans. A little extra tip that’s worth mentioning is to call all of the lending institutions that you’re considering on the same day. Interest rates fluctuate often so the quotes may vary by day because of that.
- Once you’ve gotten quotes from a few of your options, it’s time to compare them. You’ll want to compare all aspects of the potential loans, including interest rate, estimated mortgage payment, mortgage length, down payment, closing costs, etc. Any information the institution is willing to give you should be compared with the info gotten from your other options.
- While you’re comparing the loans, try to find all the possible fees associated with it. When you call the lending institution, ask them directly what their fees are. One may offer a lower interest rate, but have higher fees. Sometimes these fees can offset the lower interest rate to such a degree that you’ll end up paying more in the end.
- Another great tool to help you find the best interest rate is to use a mortgage calculator to determine the estimated payment you’ll be looking at for the interest rates offered by the different banks. These calculators allow you to put in the loan terms and they’ll give you the approximate mortgage payment. While the calculations aren’t set in stone, they can help give you an idea of what you’ll be paying.
- The last step you’ll want to take to determine the best refinance rates is to compare your current loan with the new projected loan. You’ll want to compare the interest rates as well as the loan terms and the fees associated with the new mortgage.
A home refinance is there so you can get a better rate on your mortgage or so you can improve the equity of the home by fixing it up. If you find after comparing your options that you can’t do this, it may be best to pass on the refinance. However, if the terms come up to your advantage financially, then a refinance may be the best step.